British Gas has decided not to go ahead with its $550 million Pipavav LNG project in Gujarat. Sources close to the development said the company had informed the Gujarat government of its decision.

In response to an e-mail query, Nicole McMohan, director (policy and corporate affairs), British Gas India, said, "BG India is not progressing on Pipavav LNG at this time."

Asked why it had decided to drop the company's flagship project, McMohan said, "The project must be viable for BG India to take it forward."

An oil industry analyst said: "Petronet LNG's terminal at Dahej in Gujarat, Shell's LNG import and regassification terminal at Hazira, and recovery from Reliance's gas find in the Krishna-Godavari basin will precede BG India's operations. What is more, big clients such as fertiliser and power companies have too many options for long-term agreements on LNG. All this puts a question mark on the viability of BG's investments."

However, BG India expects to continue playing a role in the LNG sector. "In order to grow its business in India, BG continually monitors opportunities. LNG will form a part of India's energy mix from next year and BG India expects to play a role in the LNG sector in the coming years. We have submitted a proposal to pre-qualify for NTPC's southern tender to procure 2.5 million tonnes per annum from 2008. In addition, the group is involved in developing a proposed LNG supply project in Iran which, once operational, is targeting India as an import market," McMohan said.

BG India, the sole promoter of the Pipavav project, had expected to bring the first delivery of LNG some time in 2007.

It had aimed at initial sales of 2.65 million tonnes a year, later scaling the size of imports and regassification to 5.3 million tonnes a year.

Besides importing and regassifying LNG, the company had planned to set up storage tanks, utilities and services as well as a power plant.

Till date, BG India has invested close to $20 million in levelling the ground at the site as well as in the engineering and design of the terminal.

The land is owned by the Gujarat Maritime Board and Gujarat Pipavav Port Ltd and is leased out to BG India.

BG India claimed that India continued to be a core geographic area of operation for the BG group. With Reliance Industries and Oil and Natural Gas Corporation (ONGC) as partners, BG India--with a 30 per cent interest--is expanding operations at the Panna, Mukta and Tapti fields and the first phase of enhancement is on target for the second quarter of 2004.

"BG India is committed to expanding its natural gas distribution businesses in India. In Gujarat, where we are the majority shareholder in Gujarat Gas, we have applied to develop the Vapi local gas distribution zone and are developing plans to grow the compressed natural gas (CNG) business. In Mumbai, Mahanagar Gas Ltd--where BG has approximately a 50 per cent stake--is investing in CNG infrastructure in order to double the number of CNG dispensing stations in the city and it is looking at opportunities to expand the gas network," McMohan said.

Game plan

BG is monitoring opportunities in India.

Firm has submitted a proposal to pre-qualify for NTPC's southern tender.

The group is involved in developing a proposed LNG supply project in Iran.